Why Bookkeeping is an Essential Part for Every Business

As soon as you hear the word bookkeeping, it translates into something methodical and boring. Due to this myth, bookkeeping is often the most ignored element of a business. Ignoring this leads to adverse repercussions on the day-to-day handling of the company’s business. According to studies, most of the businesses fail mainly because of poor bookkeeping or poor accounting records.

For the smooth running of any business, bookkeeping is one of the most important and vital elements. Initially, bookkeeping was one of the most route learning elements of business. But with the evolution of technology, even this is one of the most glorified topic now-a-days. Bookkeeping in Alpharetta or anywhere in the US allows you to have all the related data up-to-date and this will be very useful at the time of filing your taxes or at the time of audit of your company’s finances.

Once you read and understand what bookkeeping is all about, you will understand the importance of the same.

What is bookkeeping?

As the word indicates, bookkeeping means recording the financial statements of a company. This could be done on a monthly or daily basis depending on the type of transactions in a business. The person doing the process of bookkeeping is called a bookkeeper and the book in which all these transactions are recorded is called the daybook or the cash-book.

What are the types of bookkeeping?

Depending on the size of financial transactions, there are two types of bookkeeping.

a. Single entry bookkeeping: This is for small businesses which have very simple cash transactions. The day to day cash flows, profit and loss statements and the petty cash; are all recorded in this type of bookkeeping. However, since this does not involve the credit and debit statements, it is not very detailed. This type of bookkeeping would suffice small businesses. However, it is more prone to errors since it lacks the minute details of the financial transactions.

b. Double entry bookkeeping: For larger businesses, the amount of financial transaction in a day would be very high. There would be a need to record the receipts, debits, credits and various other parameters of a business. In this case, a simple single entry bookkeeping would not suffice. For such complex transactions, double entry bookkeeping becomes the right choice.

Embracing the modern technology for bookkeeping purposes:

Initially, bookkeeping was always manual – meaning all the entry of the financial transactions was to be done by the bookkeeper manually. But with the advent of new technology, most of the businesses are moving towards computerized bookkeeping. Computerized bookkeeping makes use of technology for all financial needs. Now a days, there are a large number of software available that will make the process of bookkeeping less time consuming and more robust.

Importance of bookkeeping for every business

There are many reasons why bookkeeping is so critical for your business.

a. Financial analysis and forecast: Many of the business decisions are taken based on the previous data and records. Hence, financial statements of the previous years could be used to make critical business decisions. Bookkeeping serves a major role in this part and acts as a feeder for making the right decisions.

b. Easy reporting: As a company, you would require to report your financial status to many people – like the stakeholders, investors, clients etc. In this case, a good bookkeeping would serve the purpose.

c. Organization and audit: Since bookkeeping keeps all your financial records in order, it is very helpful during the process of audit. During audit and during the times of paying your taxes, it is important to have all the data at hand. Bookkeeping enables you to make sure that all this data is available at your fingertips when you most require it.

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